KLANG V. SMITH'S FOOD & DRUG CENTERS, INC.
702 A.2d 150 (1997)
NATURE OF THE CASE: This was a dispute over a repurchase of shares. Klang (P) class
action shareholder sought review of a judgment, which determined that Smith's (D)
corporation did not violate Del. Code Ann. tit. 8, 160 by impairing its capital when it
repurchased shares in a transaction with a third party.
FACTS: In 1996, Smith's Food (D) entered into an agreement with Yucaipa for the merger of
its operations into D for the exchange of 3 million newly issued shares of D. As part of
this deal, D was required to assume a sizable new debt, retire old debt, and offer to
repurchase up to 50% of the outstanding shares of D, other than those issued by Yucaipa for
$36 per share and D was also to purchase 3 million shares from the 62.1% stockholder of D.
An expert was called and verified that the transaction would not endanger D's solvency nor
its capital in violation of section 160. The board and shareholders approved the
transaction. Klang (P) then filed a class action the day before the transactions closed
against the majority shareholder Jeffrey Smith and various other parties contending that the
deal violated section 160 by impairing D's capital. The court dismissed, P's claims in full
and P appealed.
ISSUE:
RULE OF LAW:
HOLDING AND DECISION:
LEGAL ANALYSIS:
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